Payment Solutions to Enhance Public Sector Cost Control

Public sector agencies across the Asia-Pacific region are becoming increasingly focused on spending, transparency and the management of cost flows. More urgency is being placed on ensuring that taxpayers’ dollars are accounted for. This has been on the back of a global movement to encourage openness in government through the sharing of public data and organisational information.

It is becoming a growing challenge for the public sector. On top of managing procurement costs, payments made on expenses – including travel, entertainment and dining – are undoubtedly the most highly scrutinised aspect of government outgoings.
Cutting back on unnecessary costs is a central tenet of all Asian governments. Government payments systems and infrastructures are “often expensive, outmoded and inefficient” and can be costly for taxpayers, according to the consultancy, McKinsey.

According to the McKinsey report – ‘The Future of Government Payments’ – the modernisation of payment methods “would garner substantial savings, as migration to electronic formats and streamlining operations could cut costs by 30-40%.”

The report says: “Developments in private sector technology, broadening Internet access and demands for public accountability have made transparency in government payments essential. New payments technologies provide immediate, public information on government finances and an integrated view that enables centralised monitoring that can help prevent corrupt practices.”

Managing Cost Control

Using a system that offers better visibility on payments is now a vital cog in managing cost control within the private sector – for government agencies the importance of this can’t be overstated. Large government departments require agencies to account for greater expenditure, and they are constantly looking at how to better manage their procurement practices.

A purchasing card allows a more coherent approach to expense and purchasing management. Through a purchasing card, the efficiency is centralised and there is visibility, analysis, reporting and ERP integration for policy, as well as financial/ tax and internal control compliance.

Queensland’s Savings

Over the past 10 years, Queensland’s State Government in Australia has seen annual expenditure on corporate cards for 2007 reach A$298m – card payments now amount to A$410m, and are used for low value procurement items up the value of A$5,000. Similarly, a MasterCard BusinessCard was introduced to the New Zealand government in 1989. Initially, the programme was used solely by senior management for official business travel and expenses. Once the solution became normal practice, many departments expanded its use to other staff for business travel expenses and procuring minor items. In 1999, New Zealand and MasterCard introduced the ‘purchasing card’ concept for all business expenditure.

While departments using the BusinessCard appreciated how it greatly improved the traditional procure-and-pay (P2P) process and provided faster payments to vendors, the back office validation, reconciliation and financial expense posting had to be done manually. It needed to be addressed to increase efficiency.

Web-based Services

The MasterCard SmartData web-based expense management solution was introduced by the NZ government in 2002. It allowed transactional data to be fed directly from the issuing bank into the respective departments’ financial management system. Besides simplifying back office processes, it enhanced internal control with greater transparency and superior reporting capabilities.

Complementing the BusinessCard with SmartData was a major contributor to much-improved management control and financial reporting within various New Zealand government departments. The visibility garnered from using a web-based tool meant that every dollar spent was accounted for. The programme now covers 3,400 individual cardholders with an estimated total annual spend of NZ$25m.

The system has been a major contributor to much-improved management control and financial reporting within various New Zealand government departments. The NZ Defence Force, whose financial management system was then customised to receive transactional data directly was the first to opt for it,.

Streamlining Procurement

New Zealand’s Police started their BusinessCard programme with over 450 cards in January 2005, with key programme objectives to reduce the labour-intensity of the current process and more timely capture and input BusinessCard spend into the financial system. The plan also involved limiting reliance on cardholder co-operation for programme information and developing better reporting on card spend and cardholder information.

Under the new payment system, officers were encouraged to use the BusinessCard for low and mid-value spend. Its implementation brought important cultural changes to expenditure practices, with a policy preventing abuse introduced: “Under no circumstances must a New Zealand Police credit card be used for cash withdrawals and personal expenditure.” To ensure timely, efficient posting of monthly BusinessCard activity, it was critical for transactions to be default-coded diligently.

The programme now has approximately 740 cardholders (annual spend of NZ$3m), with a limit of NZ$2,000 for most cardholders and NZ$10,000 for approved officers.

The best practitioners in cost management know that adopting reliable payment solutions that offer more oversight and control are imperative to the functions of all organisations and through MasterCard’s technology, governments can receive more comprehensive payment options alongside a range of analytical and benchmarking tools.


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